Financial impact of the 2012 drought will continue through 2016
The 2012 drought impacted about every producer and consumer of the major commodities, including feed grains, forages, and livestock.
While amounts of crop insurance indemnities were the major yardstick of drought impact, there will be continuing impacts for years to come that will not be quantified by crop insurance.
Those include the impacts on the livestock industry, which was turned upside down with unavailability of feed, which in turn upset normal marketing schedules and created abnormal market prices. But the nightmare is not over.
For the livestock producer, and particularly the cattleman, the drought began in 2011 in the Southern Plains where pastures were decimated with heat the lack of moisture. It spread to 80 percent of the rest of the continental US in 2012 and continued into 2013, still in the Southern Plains and parts of the western Corn Belt.
Keep $77 billion in mind when the drought balance sheet is reconciled. That has been accomplished by Amanda Leister of Colorado State, and colleagues John Lee and Philip Paarlberg of Purdue. The trio of economists have analyzed the long term impact of the drought and attempted to quantify its disruptive impact on the cattle industry, which did not benefit from crop insurance indemnities paid to grain farmers.
In a nutshell, the economists define the overall problem by saying; “In the short term, drought causes increased crop and forage prices as well as decreased prices of live cattle when slaughter numbers increase due to herd liquidation.
In the longer term, crop prices remain above baseline levels resulting in animal breeding inventories which decline due to reduced expected returns. This herd adjustment leads to fewer animals moving through the U.S. meat supply chain over time. The decrease in animal slaughter in tandem with relatively high livestock prices in the longer term causes a significant decrease in consumer surplus over the eight year period of analysis.”
The economists say drought-induced marketing of cattle began in the April-June period of 2012, and continued in fits and starts until the current period. “The increased slaughter in 2011 is largest in the second quarter and falls in the third and fourth quarter. The data from the first quarter of 2012 suggest that beef cattle producers held cattle in the hope of better crop and pasture conditions the following summer.
As the drought did not improve in 2012, drought induced slaughter increases again. Because the increase in cattle slaughter must come from lighter backgrounder cattle being slaughtered early, there are corresponding decreases in the supply of background beef cattle flowing into the next quarter. The percentage changes vary, but the total head decrease experienced by background cattle is the same as the increase in number of head for finished beef cattle.”
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